Thursday, December 29, 2011

I had been meaning to post on this since I read Cullen Roche's post. While I subscribe to most points of MMT, this is also my point of minor disagreement with MMT. I've never really focused much on the Job Guarantee (JG) in this blog, and I prefer to call it Employer of Last Resort (ELR) program instead. ELR sounds more like a countercyclical program, which gets activated to take the place of lost private sector demand during large economic downturns. JG sounds like a more permanent program, one that guarantees that anyone who wants a job, and who is unwilling and unable to find one in the private sector, is guaranteed to get one in government, anytime anywhere. In other words, while i subscribe to the notion that the government should step in to make up for the loss of private sector 'animal spirits' during a downturn (that borders on depression), I believe this program should be a program that is market-oriented, rather than a fixed-in-place government policy instrument.

Why do I believe the ELR shouldn't be fixed and permanent? My main concern is that a permanently-fixed JG program that pays the industry-standard minimum wage could ultimately replace market resilience, and impede its ability to adapt. An important starting point is to make distinctions between structural and cyclical downturns. A structural downturn is when the private sector is laying off people because they are losing market share in their current realms of activity, and should therefore retool and restructure themselves, in order to better adapt and compete in a changing market. When private companies are retooling, and need to hire the skills they will need to support their new initiatives, they should not be competing with the government as buyers of labour. A permanent government program will add more market frictions to attracting and allocating labour where they are most needed in the private sector.

Meanwhile, the people who lost their private sector jobs should by default be looking at the market to see who is now hiring, who is growing, and then determine what is needed to be learnt to join these growing and hiring firms. They cannot just have a default attitude that says 'Hey, why do i need to learn to program a computer, or transition into the healthcare industry, or be a better salesman, or learn a new trade, when I can get a job in government helping teach kids or clean parks and be at it until the day I retire". A permanent job guarantee disincentives people from learning that new skill that private industry may be transitioning into, particularly if the skill requires effort, or has some risk that the jobseeker may fail at it. Venture and possible failure are essential components of capitalism, and those whole fail at a certain venture need to go and venture elsewhere again. A default program that catches everyone who fails that the first venture will likely make some people too comfortable, and decide that any further risk is probably pointless and unnecessary. A JG program that is expected to disappear, however, once private sector starts hiring in bulk again will make some of those who may otherwise be content with the JG to start planning ahead, even while the government program is still there.

A permanent JG makes it more complicated and expensive for private industry to attract people, because having shifted the risk-return tradeoffs of learning a new trade or joining an new as-yet untested industry, JG could make people less interested in helping new companies succeed, or in helping a new industry to mature. If things start to become too difficult, it may be easier to day "It's okay, we can always just close shop all join the government". The tradeoffs would also shift for the would be small-scale capitalist. "Why would I risk more of my own capital to grow this company, when if a bigger competitor comes in, I can just sell off all my inventory, then I and all my workers can just join the government." This default thinking does not apply to everyone of course, but since this applies to some, it shifts the tradeoff curve for everybody else. Private sector venture seems so much the riskier when it's not the only game in town.

So the question we should be tackling is, how do we recognize when a downturn is cyclical vs structural. How do we recognize when private sector is ready to take off on its own, and thus, any existing JG programs should therefore start winding down. (My guess is that the JG program will have some lag, in that it could be taking in the most applicants just when the first embers of private initiative may already be starting to flicker). And we need to answer how much government participation is needed in turning around the lack of demand. My guess is that it will come down not just at looking at how many people are applying for the JG. You would need to look at how much deleveraging is still happening in the private sector (If people are still heavily in debt, with most income going to service it, they aren't likely to spend or invest on their own sometime soon). You would need to look at why the previous jobs disappeared (Did they disappear suddenly due to a fall in aggregate demand, or did they disappear because this industry is no longer competitive, or providing what buyers want). You would need to see what is in the minds of both the households and industry.

This is something is have not yet seen in discussions about the JG program. While i agree that in the current environment, such a program is what is needed, i doubt that it would always be, and I don't know if everyone who advocates it now would be as open to dismantling it when it's no longer necessary. After all, government is supposed to be an employer of LAST RESORT only.

33 comments:

Incentives.. hmm. If JG disincentivizes workers to seek private employment, then so be it. It would not be the fault of the JG program, but rather of the privately offered alternatives.

JG should offer only a very basic (but decent) wage and benefit package. Private companies will need to compete with that, and offer something better. And those who can't should probably rethink their business model.

Holding crappy businesses under their arms by maintaining a pool of desperate job-seekers willing to work for nothing is not a good idea.

Note also that various kinds of worker skill improvement programs could be offered under the wings of JG.

I appreciate the thoughtful post and also appreciate the discussion at large.

Personally I tend more towards Hugo' points and to a more or less permanent JG.

However, I am not tied to anything, so long as it works one way or another.

Your point about counter-cyclicals reminds me of MMT prescribed fiscal policy as well as the current Fed monetary policy. And it really brings up to me a far larger point and perhaps far more important discussion....namely:

If we "institute" something, how can we oscillate it effectively with conviction, precision, and timeliness? I sympathize with Tea Partiers and RP-ers that are against expanded government due to point of inefficiency, however like Cullen I also see natural and complex points that government contributes. The real question becomes how to make our government and our regulations and institutions more "breathable" and "adaptive" particularly in our far-FAR-more fast-paced industry today compared to 1776. Solve that one dear USA and I'll invest "all-in" with ya baby. ;)

Thanks all for good comments. Hugo, to me it comes down to either not making JG permanent OR if you want to make it permanent to set a price level, it should pay at a MUCH LOWER wage than private sector.

Otherwise, why would anyone take a private sector job that can someday be made obsolete by the market when you can always take a safe government-guaranteed JG job that will always be there no matter what. If we had a JG a hundred years ago, we might still have horse-tending positions, manual candlemaking jobs, and manual weaving positions. We may never have transitioned to the automobile, to the electricity economy, or to mass-produced goods.

The cost to to hire would have been more proibitive for new businesses, and looking at tradeoffs for both employees and would-be employers, it would have entailed a much higher assured premium for private business to make up for the higher risk of joining or setting up in private industry, when government-assured jobs are there for the taking for all posterity. No one will want to make the risk for so low a spread over riskless government positions. It would have been up to the government to invent the automobile, innovate the mass-market economy, and to develop the electrical industry. I'm not sure it would have been as great as we have it now, if everything had been done by an entity that monopolized the economy like government would.

If we had a JG a hundred years ago, we might still have horse-tending positions, manual candlemaking jobs, and manual weaving positions. We may never have transitioned to the automobile, to the electricity economy, or to mass-produced goods.

however this is assuming the government is not technologically competitive. Do you know of any government jobs not using excel and word?

Remember though the JG/ELR is not necessarily a government RUN job....although it would be a government SPONSORED job. In other words, local community-based organizations and non-profits across sectors would/could also participate in the JG. It's not as if the JG would simply "create" one more SSA call center office in every town or something (I'm not saying you thought that or anything btw). So the work becomes a part of the local community and culture.

I see your point about manufacturing cars and cheap labor, however this is one of the reasons supporting a JG/ELR...it places a more appropriate floor for businesses to compete against. This is a good thing. Innovation will still exist here with slightly higher wages in the private sector just as innovation is still here with hugely higher interest rates and taxes, etc. A good business idea will always come to life. And "baking in" more appropriate standards for our workers is a good thing. So a business needs to scale back on the C-suites....is that really a big deal these days? And any company that's so small it doesn't have a c-suite isn't pumping our serious new innovation the likes of Ford, etc. It's all part of the new US economy imho....no more "slave labor" like that, especially if you're not going to put up pensions on the back end. Plus manufacturing jobs aren't exactly a driving force nowadays in the US anyways.

The lowest UE has gone in recent history is around 5% +/-. I don't know what U6 historically is but of course it's higher. So really we've always had a UE issue and now with our balance sheet recession, an ELR is very important now.

There just isn't any reason to have unemployed people in our monetary system in plus our deflationary malaise where there's tons of work that can be done and demand to build.

Personally I think setting up a better health care system so businesses don't have to get involved will more than offset any ill effects a JG/ELR would ever have on wage levels. And again in our monetary system there's just no reason NOT to do it...and it helps businesses lower their "hurdle rates."

Mario, I don't mean to say that government is not technologically competent, or that government people do not use know how to use computers. I'm saying that government, left to its own, will not have the incentive to start up and innovate new technologies. The JG's main aim, if it is instituted, will be to provide jobs to those looking for work, not to come up with new products, or obsoletize those that are currently being offered.

What I'm saying is that if government is offering $10/hr for its JG program, then businesses would have to offer maybe $15/hr to attract its most basic workers away from the JG, and therefore, more crucial skills would probably rise from $50/hr to $70/hr, and these could very well be the skills that new developing industries would need to develop their new products and the new markets. And if government increases the minimum JG wage to $15/hr, then perhaps the crucial skills business startups need to hire will now cost $90-100/hr.

If you were the entrepreneur contemplating that startup, will you bother? You can just try to match government's salary (with a little premium), and just offer what's always been offered before. There's just less incentive for risk-taking. At a certain price point, the entrepreneur himself would probably be also thinking he should just take a government job himself.

I hear you Rogue and I agree at some point that would occur. However if that would be 8/hr or 15/hr or not at all is still to be determined.

I think the competition with EM's is a fact of life at this point regardless of an ELR and considering we are the net importer....we have an even greater responsibility to appeal to full employment b/c business is already going to be "reserved" and perhaps "cash heavy." Hey you can only hire so many people at the mac store, ross, and cheesecake factory. We are becoming a service based economy more and more. I think the other way around this is by inspiring a new breed of business-men and entrepreneurs ALONG WITH far more serious language studies so that WE CAN RUN companies overseas and leverage the EM's in our favor.

Either way, running off the "old model" of the pre/post WW2 manufacturing-based economy just ain't gonna cut it I'm afraid to say. We are going to need to think like 21st century world citizens in an electronic age of information, etc.

It could even be argued that more focused community-based efforts the likes that an ELR would produce are in fact more valuable than manufacturing jobs (which again are dwindling here anyway) for local economies and real people (nominally) in our age of information and easy-access. It's not to say that we'll have some completely dependent community of government employees, but we'll have liveable wages, etc.

I mean if your concerns are really accurate won't they also be occurring to all the millions of people on unemployment anyway? If so, why not pay them to work instead of pay them (or not pay them) to do nothing but look for a job that doesn't exist.

Well, I'm not against a government jobs program, as you may already know from past posts. In fact, I'm advocating for it, to get us past this recession. I'm just wondering whether it should be fixed and permanent, even after private industry has restarted.

I'm not saying we go back to pre WW2 based-economy, I actually think we might end up not being as progressive in developing new companies if we completely take away the impetus for private sector initiative with a permanent JG.

I applaud efforts to launch community-based JG-sponsored jobs programs that provide livable wages. But you don't want people to keep staying with the same community jobs their whole life. You want them to have opportunities to get back into private industry, and you want private industry to have incentives too to make their risky investments (when we are finally out of this recession). You don't want the JG making the hurdle to profitability much higher for these risky investments. And you don't want these prospective entrepreneurs ending up not as proactive in developing and investing in their businesses because they can always go back to getting a JG job if things start to become too difficult with the business.

I'm not thinking of the big multi-national corporation executives here. I'm thinking of your neighbourhood shopkeeper or your local smallscale job creator who only hires 10-20 people at a time. Their profits are not that high, and their tradeoff with starting a business vs just getting a JG may not amount to a lot.

You don't want the JG making the hurdle to profitability much higher for these risky investments.

we already have a minimum wage. How much more of a hurdle are we really talking about? If you set the JG wage at minimum wage then there is no hurdle except health benefits which would be offered to JG workers. But as I say if health care is no longer the burden of businesses that goes away too. I don't see much of a hurdle here at that point. Do you?

And you don't want these prospective entrepreneurs ending up not as proactive in developing and investing in their businesses because they can always go back to getting a JG job if things start to become too difficult with the business.

If an entrepreneur is "swayed away" from his business for an 8/hr gov. job then he's not an entrepreneur. Seriously man come on. We're talking about a basic work option for people that aren't employed and probably don't have a real competitive advantage in the private sector to begin with (ie racial and class differences). The main purpose for the JG is to provide a more skilled and active job pool for private business to pull from while at the same time building a demand floor in the economy and allowing a man to provide basic levels of sustenance for himself and his own without favors and benefits being offered. This seems pretty obvious to me. And when we already have a minimum wage in place, it becomes increasingly difficult for me to accept the hurdle argument particularly in the face of such a social travesty the likes of sustained UE within our monetary system.

I'm thinking of your neighbourhood shopkeeper or your local smallscale job creator who only hires 10-20 people at a time. Their profits are not that high, and their tradeoff with starting a business vs just getting a JG may not amount to a lot.

adding on an additional employee is always a business consideration, however social mobility is also a major factor that private businesses hold which JG jobs do not.

Every worker knows that as his resume grows so do his opportunities. Your assumption is that a JG job at 10/hr is considered equivalent to a private job at 10/hr to a worker. I challenge that assumption. Why wouldn't the worker take the private job? What risk does it pose to him? He has nothing but upside on that investment...his resume will grow and expand and his opportunities will grow and his experience too. It's by-far a better opportunity than the JG. Plus, if it doesn't work out or things turn sour or he's fired, etc. he can still go right back to his JG. He's lost NOTHING in the venture at all. He has nothing but upside Rogue. I think this analysis is more accurate and will be more likely as to how the JG will support the economy and hiring trends.

"we already have a minimum wage. How much more of a hurdle are we really talking about?"

We have a minimum wage but currently we have no JG. The additional hurdle with a JG is that the the minimum wags will no longer be the clearing price for labour when it comes to private hiring. It will now be the minimum wage plus an additional premium to get people to work for private sector over taking JG job. This affects the salary structure of everyone in the firm, including those that the private firm will have to pay more for than minimum wage, because now they have to get paid more as well since the lowest salary in the firm has already moved up. It's just the way it is in a private sector firm, working in a free market.

"If an entrepreneur is "swayed away" from his business for an 8/hr gov. job then he's not an entrepreneur"

If his wage costs for hiring 10 people have risen from $400K to $700K a year because of having a JG during a booming economy, that difference could very well be his profit already. Why would he continue risking his capital (which could very well be his retirement nest egg) when the JG assures him an assured income/wage for himself, and he also knows his own workers also have the same tradeoffs, and hence, could leave the firm much more easily during the booming economy when his competition for their services is not just other private firms, but government as well?

"We're talking about a basic work option for people that aren't employed and probably don't have a real competitive advantage in the private sector to begin with"

Again I have no arguments against that given the current economic condition, but I'm talking about when the economy is already growing. People will have options when the economy booms again, and this will increase the cost to private businesses, most particularly for those who are small-scale. The JG could very well just crowd out the smallest firms permanently.

"The main purpose for the JG is to provide a more skilled and active job pool for private business to pull from while at the same time building a demand floor"

The skills are good for private business if the workers are going to be available when they are already hiring. But while the demand floor will be a decent life wage during a recession, the higher wage floor will price small businesses out during an upturn.

"Your assumption is that a JG job at 10/hr is considered equivalent to a private job at 10/hr to a worker. I challenge that assumption. Why wouldn't the worker take the private job? What risk does it pose to him?"

Usually no one changes jobs unless it's for a higher wage.

"Plus, if it doesn't work out or things turn sour or he's fired, etc. he can still go right back to his JG. He's lost NOTHING in the venture at all. He has nothing but upside Rogue."

You're right. And this new dynamic, as I said changes the dynamics of private sector hiring forever. I'm not saying it's bad for the worker, just that it discourages the formation of new small startup businesses during a boom. Some of these companies that do not get started might have been the future if different dynamics were in place.

If his wage costs for hiring 10 people have risen from $400K to $700K a year because of having a JG during a booming economy, that difference could very well be his profit already.

Why would his wage costs rise nearly 50%? If he needs to raise his wages that much then that is some SERIOUS wage inflation or he's one nazi of a boss that seriously under-pays his employees. I think your example & concern is a little exaggerated. There would be some wage competition in a boom economy to retain workers, however it's a boom economy (& the JG would NOT raise their wages that often at all)…that company would have to raise his wages even w/o a JG to stay competitive. I fail to see the concern, since his rates will be higher than the JG and all companies already deal with rising wages in boom economies. Also the contribution margin to raise wages would still be positive in a boom economy, b/c his rates & sales volume are higher too.

Usually no one changes jobs unless it's for a higher wage.

A private sector job even at the same rate of pay as a JG ALWAYS has higher wages "baked in," b/c of upward mobility either within the company or with other companies. It's just the way it works. If you were a company, would you consider hiring someone at a higher rate that only has a JG on their resume or someone that has private sector experience? It's obvious that it would be the private sector person. Employees know this too.

The objection I think I keep hearing you make is that businesses will have to pay a premium above the JG/minimum wage rate for asking laborers to do certain types of undesirable work compared to JG labor. I both disagree & agree with you. I agree with you since there is labor description variance even within the JG itself, so some JG jobs would be "cushier" than others. However I disagree with you b/c many JG jobs would be relatively equal in shitty-ness (that's a technical term of course :0) to low-end private sector labor. Picking up trash on streets & highways, cleaning out abandoned buildings & old storage units, digging ditches & cleaning toilets are all pretty comparable to working on a factory line, etc. I also disagree with you in principle b/c the JG is providing people with two very important things that are worth this rather minor (if any at all) "premium" these low-end jobs would have to pay:

#1. a means of sustenance in our monetary society/economy (as opposed to an agrarian one) in other words "life, liberty, & the pursuit of happiness" stuff.

#2. a means of leverage & real negotiating power against oppressive or undesirable working conditions. I don't like this low-end, non-union, low-paying shitty job w/ an asshole boss, so I quit. This makes businesses be nicer & seek to serve their workers more. That's a good thing. Being respectful & nice & fair is not a cost in nominal dollars.

Your arguments against a JG remind me of early 20th century working conditions. Just think of all the "innovations" we could have had if businesses didn't have to deal w/ OSHA standards & a min. wage!?! What are we missing out!?! It is an Ayn Randian, RP-type of logic that I think causes more harm than good. A JG priced at/around min. wage (legal or a local private sector average) is really quite innocuous as well as relieving for a large part of our economy that is already heavily marginalized to begin w/ in boom or bust economies. In boom economies there’d be less people in the JG and more in the private sector.

The case against pursuing full employment in all economic cycles is really a rough road to hoe. The facts are scarce & the lack of a social conscience leaves a sour taste in just about every economists' mouth. I think bringing up all the objections is great, but it’s hard to prove they outweigh the benefits in whatever business cycle we are in.

also I forgot to add that in boom economies there’d be less people in the JG and more in the private sector, so it's really like an auto stabilizer in that regard, which fits right in line with what you're saying about it not being permanent. It would naturally work like that just like any auto stabilizer.

If there is still a JG program when the economy is already in an upturn, and government is offering $10/hr for its JG program, then businesses would have to offer maybe $15/hr to attract its most basic workers away from the JG, and therefore, more crucial skills would probably rise from $50/hr to $70/hr, and these could very well be the skills that new developing industries would need to develop their new products and the new markets. And if government increases the minimum JG wage to $15/hr, then perhaps the crucial skills business startups need to hire will now cost $90-100/hr. It won't be long before overall wage costs increase 50%, especially if the company employs more of the higher earning people who will now be compensated higher as well.

"There would be some wage competition in a boom economy to retain workers, however it's a boom economy (& the JG would NOT raise their wages that often at all)…that company would have to raise his wages even w/o a JG to stay competitive."

But the wage competition will now start at a higher level because of the need to attract workers at the now higher lowest level. Again this dynamic affects the whole salary structure all the way up to the top.

"A private sector job even at the same rate of pay as a JG ALWAYS has higher wages "baked in,"

Probably, but not everyone will think that way. A few people that are willing to stay with the JG will demand a higher wage just to transfer back to the private sector, and this will make the hurdle rate much higher for small scale and startup businesses.

"I also disagree with you in principle b/c the JG is providing people with two very important things that are worth this rather minor (if any at all) "premium" these low-end jobs would have to pay: #1. a means of sustenance in our monetary society/economy (as opposed to an agrarian one) in other words "life, liberty, & the pursuit of happiness" stuff.#2. a means of leverage & real negotiating power against oppressive or undesirable working conditions. I don't like this low-end, non-union, low-paying shitty job w/ an asshole boss, so I quit. This makes businesses be nicer & seek to serve their workers more. That's a good thing. Being respectful & nice & fair is not a cost in nominal dollars."

No disagreement on #1, as I also advocate a government jobs program during a deep cyclical downturn. #2 cuts both ways. Workers can game the new system to their advantage, negotiate for much higher wages, and then quitting much more easily over the triflest of things, because they can always go back to the JG. If you were the small scale employer, this changes your planning dynamics.

"Your arguments against a JG remind me of early 20th century working conditions. Just think of all the "innovations" we could have had if businesses didn't have to deal w/ OSHA standards & a min. wage!?! What are we missing out!?!"

If we had a JG competing with private industry during the booming low unemployment times of the 1990s, the cost of starting a company would have been much higher. While less of the fluff companies would have been started, google and amazon might have been part of those not started or funded. They also employ minimum wage workers, and the higher wages of these workers would have trickled all the way up to everybody else in the company. It's hard to wonder about these what-ifs but it's not illogical to expect that a JG program during boom times changes a lot of things.

"I think bringing up all the objections is great, but it’s hard to prove they outweigh the benefits in whatever business cycle we are in."

I don't object to the JG itself, just to the permanence being proposed.

"that in boom economies there’d be less people in the JG and more in the private sector, so it's really like an auto stabilizer in that regard, which fits right in line with what you're saying about it not being permanent."

There's a difference between having a program with a known end date, where everyone employed there has no choice but to find a job in private industry, and having an open-ended program, that can be used by workers to out-negotiate small businesses the way large businesses used union-busting to out-negotiate the workers.

and therefore, more crucial skills would probably rise from $50/hr to $70/hr

probably not. Yes there is a sliding scale, however there are "steps" on that scale. Who's getting $50/hr in a small business? No one I know. People get paid on salary at a certain point, and again it's the same principle...a better job always has higher prices "baked in." The assumption is not solid. And the JG will likely "never" get to 15/hr unless inflation is like 30-50% or something.

But the wage competition will now start at a higher level because of the need to attract workers at the now higher lowest level. Again this dynamic affects the whole salary structure all the way up to the top.

not if the JG wage is at or near min. wage. It would still only be businesses paying premiums for un-fun labor. LOL

A few people that are willing to stay with the JG will demand a higher wage just to transfer back to the private sector, and this will make the hurdle rate much higher for small scale and startup businesses.

yes of course that will happen. But will it happen to a point where small businesses will have NO ONE (no one) that will take a job they are offering at or near the JG wage? Of course not. Also the JG wage + $0.50 or $1 would be more than enough to attract workers into small business jobs. A $5 differential is just not realistic. We're talking about JG workers here remember. Let's keep this thing in proper perspective. This is supposed to be designed to give people sustenance NOT luxury or even "comfort" necessarily.

#2 cuts both ways

As it should in a proper "free market." That's when supply and demand is truly at work. As it is now there is no "free market" for workers. They have zero leverage and negotiating power with their shitty, low-paying, non-union, pathetic jobs with asshole bosses. You either like it, find another job (usually horizontal "progress"), or quit, get evicted, and die of starvation or live with your parents forever. How can we even call that a "free market" with real supply/demand dynamics?

Part of the implication of supply/demand is that we have a say and if we don't like what you're doing, we can let you know. So yes workers can "game the system" however they'll be stuck in a JG for the rest of their lives. Let's face it either way it's pretty damn shitty man. We have to give these people something sheesh!!!

You're also forgetting that these JG workers will ADD to aggregate demand and therefore add to consumption, gross margins, and net earnings for all of these small businesses. It's an economy. Yes there's a slight "wage war" going on, but people are providing for themselves AND small businesses have a BACKSTOP on demand for their products and services. I mean this is a serious, serious advantage for EVERYONE even after you net out the "wage battle," which frankly is really going to be maybe a dollar or two. Plus you're also not considering that small businesses now have MORE leverage in getting more bang for their buck with each successive promotion. In other words since there's a larger pool of workers demanding promotions, they can add more to the work load for each successive promotional level. This could very easily lower their aggregate wage costs as one person could take on the work for 1.5 or even 2 people. These are real dynamics that would be in effect with a permanent JG and I argue it would make business MORE PRODUCTIVE, INNOVATIVE, AND PIONEERING.

I don't object to the JG itself, just to the permanence being proposed.

I know...and I'm just holding your feet to the fire on this one, b/c I respectfully disagree with you for the said reasons. ;) I don't think your reasons are solid enough. Not only are the potential negatives overpowered by their respective positives aspects, there are just far more positive aspects altogether.

If you're saying it should be only implemented in bust times, then there needs to be some dynamic that occurs in boom times that does NOT occur in busts that is so negative it outweighs the positive aspects. I have yet to hear anything of that sort. The JG would be an auto stabilizer so in boom times there would just be less nominal workers signing up each day. I see no sufficient reasons or hazards from a permanent JG compared to a counter cyclical JG.

Programmer, doctors, lawyers, tradespeople, equipment handlers. It depends on the business, and what the skilled worker brings. These people work for firms directly or as contractors, too. And the small businesses work a contractors for other businesses, whose costs also increase when the small business' costs increase. This can be a self-reinforcing cycle during boom times.

"And the JG will likely "never" get to 15/hr unless inflation is like 30-50% or something."

The JG wage doesn't have to increase much if already has a potentially magnifying effect on private sector wages during booms.

"but will it happen to a point where small businesses will have NO ONE (no one) that will take a job they are offering at or near the JG wage?"

Some businesses may get workers, others not without extensive premium. Different situations for different people, but during boom times, there will definitely be a crowding out and/or inflationary effect of government competing for scarce workers during a boom.

"As it should in a proper "free market." That's when supply and demand is truly at work."

I wouldn't characterize a JG during a boom a completely free market. There'a monopoly issuer of currency that competes for scarce resources with private firms that need to generate positive cash flow to survive. It's an uneven paying field.

"So yes workers can "game the system" however they'll be stuck in a JG for the rest of their lives."

To those that choose to stay with a JG, it won't make much difference. But the effect on less private initiative is unknowable.

"You're also forgetting that these JG workers will ADD to aggregate demand and therefore add to consumption, gross margins, and net earnings for all of these small businesses."

Yes, they do add consumption, but they will be consuming as well had they been employed by private firms during a boom. I'm not focusing on them lacking a means to survive anymore in this post. My point is what happens when the JG continues during a private sector upturn. Likely only big businesses will thrive. Small businesses not so much. It would not be illogical to think that a permanent JG could actually entrench current big players of the private sector because mall up and comers will be priced out of the market for people.

"I mean this is a serious, serious advantage for EVERYONE even after you net out the "wage battle," which frankly is really going to be maybe a dollar or two."

I didn't say that it wouldn't advantage workers. They would benefit, when the JD gives them more leverage to negotiate during a boom. But what are the costs long-term?

"In other words since there's a larger pool of workers demanding promotions, they can add more to the work load for each successive promotional level. This could very easily lower their aggregate wage costs as one person could take on the work for 1.5 or even 2 people."

How does this happen? How can any business make anyone work more when that worker can always opt out of the private sector? During a boom, a continuing JG could actually lower productivity, innovation and pioneering.

"If you're saying it should be only implemented in bust times, then there needs to be some dynamic that occurs in boom times that does NOT occur in busts that is so negative it outweighs the positive aspects"

That dynamic is private sector hiring. In boom times, a JG competition for wages becomes negative for private sector initiative.

maybe there is a misunderstanding regarding the purpose of the JG....it is there to employ people. But the JG itself would NOT actively seek for hires. It would not be advertising or posting for jobs, etc. It's just there. If you want to use it. Great. If not fine too...except just know that your UE benefits end after 6 months (or something).

So in a boom time, it's not as if the JG will also "need to hire" anyone and therefore compete with private sector hiring somehow. No. They are only there as a public service. No need? Less demand? Great! Ironically, the less use of the JG is the goal. Having a JG does not alter the population levels. The same amount of people will still be in the USA regardless if a JG exists or not. Most everyone will want to leave the JG asap and those that don't probably wouldn't be able to survive in the private sector workforce for very long anyway, so hence the JG is there for them too. It all really does work out.

Programmer, doctors, lawyers, tradespeople, equipment handlers. It depends on the business, and what the skilled worker brings.

So you're saying that b/c a mail clerk, factory line worker, or basic admin/receptionist is now getting 10 - 15 an hour as opposed to 8-12 an hour that the skilled professionals you mention are going to demand higher wages? Sorry I have to disagree completely here. There are "professional walls" for pay rates. These professionals don't care what these people are getting paid (relatively speaking of course)....they have their professional skills and trades. It's not comparable and are not so heavily and directly correlated as you are asserting. Not at all. If they were then whenever a company gives these entry level workers a raise, then the higher professionals (like a lawyer and programmer for example) would also be demanding raises? Come on man.

Yes, they do add consumption, but they will be consuming as well had they been employed by private firms during a boom.

not if they can't get a job at all eve in a boom economy, and not if they know that job is not permanent and that they'll have to wait for congress to "authorize" another JG program (ugh). The JG helps at all times and is needed to be available at all times. It is the equivalent of oxygen for an economy with our type of monetary system.

How does this happen? How can any business make anyone work more when that worker can always opt out of the private sector?

who in their right mind would balk at working harder for a salaried position (or in their own trade or service business) and choose an 8-10/hr JG job instead? What's going to happen is you're going to have more people in the labor pool to choose from for entry-level positions and therefore the next promotion is that much more competitive, so you can make the job that much more demanding, b/c there's more demand. It's EXACTLY what's happening today with increased productivity levels. It's happening now b/c of a larger labor pool...and it would happen the exact same way under a JG.

"maybe there is a misunderstanding regarding the purpose of the JG....it is there to employ people. But the JG itself would NOT actively seek for hires"

They don't have to actively seek for hires. The fact that they're there makes them part of the equation when jobseekers contemplate private sector jobs.

"So you're saying that b/c a mail clerk, factory line worker, or basic admin/receptionist is now getting 10 - 15 an hour as opposed to 8-12 an hour that the skilled professionals you mention are going to demand higher wages?"

If you don't believe me, ask any compensation expert about how salary structures are decided.

"not if they can't get a job at all eve in a boom economy"

If it's a booming economy, they'll more likely get jobs. Unless you're talking about totally unemployable people, because of their attitude problems. Why would the government want them?

"who in their right mind would balk at working harder for a salaried position (or in their own trade or service business) and choose an 8-10/hr JG job instead?"

My main point is not about who's not going to work harder, but who's going to choose to stay in a JG without a significant wage increase from private sector. The rational thing to do would be to stay where you are unless private sector jobs are paying more. I;m talking about the low skill level positions here, but their higher salaries will affect salaries across the firm.

I think we just found the normative level of this great discussion. At this point it becomes a "let's try it and see" statement and see which way things go.

Either way I'd like a JG to start up asap and we can always adapt it and course correct it whichever way the actual data points tell us are directing for us...which goes back to my original comment about how really the greatest thing we can all do is learn how to adapt and move more fluidly and effectively in such a fast-paced world now.

one last thing regarding the JG....it is crucial to contextualize the pool of JG workers within an MMT-based fiscal environment.

In other words, the JG works best when the proper fiscal policies are being implemented to keep the JG pool as low as it an possibly be to begin with. This mitigates much of the boom/bust concerns you have, b/c with the proper fiscal policy those booms/busts are already more effectively controlled.

I've only just discovered these two posts so I may have nothing to offer but can I suggest that doing some research into workfare, specifically Work for the Dole in Australia to see what effects that a much lower wage in the JG compared to the private sector may have.

Senexx, has there been a study on the program's effects on private sector wages? Do you now where to find it?

Rodger, all very good questions. My own position is that ELR's just a part of more complete fiscal program for recovery, one that might include incentives for private businesses to hire local rather than outsource globally, to buy local rather than import their components, that would include some trade restrictions and capital controls. There are only so many people who could be hired to teach and work in parks (which seems to be the bulk of JG).

Rogue economist, You claim that in structurally induced downturns, ELR jobs should not compete with or draw labour away from regular employers. Agreed.

But I think you’ll find about 95% of the advocates of ELR are well aware that ELR should NEVER EVER draw labour away from viable or productive regular vacancies. Thus the question as to whether we are in a “structurally induced downturn” is of very limited relevance.

Moreover, do these “structurally induced downturns” actually exist? I suggest that the pace of technological change is pretty constant from one year to the next. To that extent “structurally induced downturns are a bit of a myth. Can you actually point me to an example of a structurally induced downturn? The only possible example I can think of was the sharp oil price increase in the 1970s. But personally I'd attribute the stagflation that followed that incident to political factors (unions demanding excessive pay increases).

I would give examples of structural downturns as when the typewriter industry had to downscale when people started buying computers instead. Or of the fax manufacturing industry when email started taking its place.

How do you encourage people who used to make typewrites and faxes to start learning how to make computers, or how to set cable lines for the burgeoning internet when they have a 'transition job' in the JG that promises to keep them employed for as long as they wish, while positions in computer making and in cable line laying go unfilled because it would take a higher pay to get people to start learning a new skill for a new, as-yet unknown industry?

I know all the arguments for helping people who have lost jobs, I've made them myself. But now I'm going beyond, so that when we do agree to institute a jobs program, it's clear what its aims would be,and to what extent its reach would be made. Otherwise, it risks having a mission-creep, and before we know it, it's become the main constraint to encouraging private sector to create jobs.

While the JG should help people survive loss of their regular jobs, it should not completely shield them from the difficult decisions of making the necessary adjustments and learning new skills, so that they can rejoin the regular economy, wherever its growth is going to be.

There should be more yardsticks to deciding whether to grow such a program than just because more people are applying for it. it should also be cognizant of what the regular economy is already trying to do, otherwise, it's no longer just a countercyclical program. It would already be an alternate economy by itself.

The question is, if there is a JG program now, how do we ensure that it will not become something permanent? Anyone who knows how the Government works knows that once a program comes into existence, it tends to drag on waaaay past its useful life (Exhibit A: farm subsidies!).

Another exercise in futility from our friends on the left making MMT a laughing stock.

There are at least a dozen federal programs and a whole Government bureau with a Cabinet position devoted to this issue. How's that working out?

And each state has a massive amount of employment offices devoted to employment because unlike the Fed the states have to tax . And if they borrow they have to pay it back and employment is the main generator of the state income.

The thought that we need a new program because the other programs didn't work but our new program is different...

Hubris? Religious belief in government efficacy?

Why doesn't MMT offer something useful and doable?

Such as college for all with student loan forgiveness at graduation? How about copying Germany and encouraging union and private apprenticeships with subsidized wages.

I have no problem with the negative income tax expanded to include anyone making less than the minimum wage.

Here's a suggestion: ask the owner of the local McDonalds what he thinks of the JG and the effect on his payroll.

Oh wait! He doesn't count because we'll just have the government enforce the new law. After all he can always get a job under our new program if he is a lousy business man.

And I don't mind paying double or so for a hamburger so he can pay the wages and new benefits and taxes and fines for non-compliance and who knows what else this great piece of left-wing fantasy will entail?

Doesn't MMT have enough to explain that budget deficits are not a "burden on our children"?

Or do you like being relegated to a small footnote in economic journals?

yeah those ideas are fine. MMT in its true meaning has not qualms or conflict with any fiscal policy so long as it fits into the framework. One of those frames is having some type of "buffer stock."

You don't want a JG? Fine. What do you want? MMT says to have a buffer stock of some kind.

There are other programs that can be done.

MMT as I see it is not so much about "telling you" what to do as much as it is providing new perspectives on economics and how to qualify and quantify certain metrics of "success" and "reality" in our monetary system.

One of the reasons I like/love MMT so much is that truly the only real constraint with MMT lies in political policy and ability to implement an idea or program.

Personally I find the retort of political "impossibility" as a cheap and easy cop-out statement. Look around at the ridiculous things being passed by our government....if they do THAT then surely we can do anything....so long as We the People get behind it, think about it, spread the word, etc. Cultures and society change b/c WE change.

All economic schools of thought have to contend with "politics" so those concerns are not special or peculiar to MMT...unless of course they are monetarist ideas that are based on IS/LM models and the status quo....then you have more leverage in getting things passed. Boy that sure has worked well for us hasn't it!??!! LOL

As long as the ideas and brainstorms fit within the MMT paradigm as far as I'm concerned they are "open game" and we SHOULD be considering their possibilities. You'd be thoroughly surprised to realize how powerful our thoughts recorded today are upon the world of tomorrow. Just take a look behind you and you'll see all the writing on the wall you'll need.

So in short, MMT opens more doors than closes them, and please remember that. Cheers!

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"Conventional approaches, unconventional conclusions" on the global finance and economic issues of the day. Rogue Econ has been a banker and financial consultant in several countries. Welcome to my blog.